Editor's note: As a special feature for April, TheStreet.com offers a 20-part series on virtually everything about real estate. This installment is Part 19.
Bad mortgage loans aren't the only thing weighing on the housing market.
In addition to the flurry of "for sale" signs sprouting up across the U.S. as homeowners try to unload property they can't afford, there is also a glut of condominium units under construction that could prove to be a drag on prices for years to come.
But that could be good news for tenants, as many of these condo developments are being converted into rental units. The additional supply should temper the rapid rise in rents, particularly in places such as Southern California, Las Vegas, Washington, D.C., and much of Florida.
For example, In Miami, considered the poster child for the condo craze in recent years, over 15,000 new units are expected to be completed in 2007, according to Torto Wheaton, a unit of CB Richard Ellis. That's more units than were sold in either 2005 or 2006, when the real estate market was much stronger.
Torto Wheaton senior economist Gleb Nechayev says condo developers, faced with limited demand for the new units, have three options: They can abandon the projects altogether, postpone putting new units on the market or complete them as rental units. "In reality, we will have some combination of those factors," he says.
For the past few years, the opposite was true: Speculative buying drove real estate prices up so high that many rental buildings were converted into condos. This diminished supply contributed to the rise in rents, particularly once employment picked up, putting more young people who had been living at home or bunking with friends in a position to set up housekeeping on their own.